Victor H. Gonzalez: The Psychological Effects of Poverty

PhD Defence, December 8
What is the influence of psychological and social factors on the individual’s motivation to pursue economic outcomes? In his dissertation entitled On the Psychological Motives of Economic Performance, Victor H. Gonzalez studies how emotions and cognitive biases influence economic success and how social factors that are external to the individual, such as being in the state of poverty, affect this relationship.

The
motivation of this subject stems from the scandalous poverty rates in
developing countries, as well as the dramatic rise in income inequality in some
of the most advanced economies. Notwithstanding the efforts to palliate these
phenomena in the last 70 years, poverty rates persist over time and the social
mobility rates in advanced economies are decreasing.

Alternative redistributive policies

This
denotes a profound need for alternative and more effective redistributive
policies. The dissertation by Gonzalez is an effort to understand alternative
mechanisms through which poverty and income inequality manifest and persist.
Particularly, those that underscore the role of the psychological states
induced by these phenomena, and their harmful influence on the individual’s
economic success in life. The existence of a mechanism whereby emotions and
psychological biases alone are able to lock the individual in poverty
contradicts standard economic theory, inasmuch as the market outcomes may not
be a reflection of the individual preferences and beliefs, but instead are
contextual-based.

Gonzalez
demonstrates that including more realistic underpinnings about the
decision-maker’s behavior, based on psychological research, guarantee the
existence of the aforementioned mechanism. This implies that the traditional redistributive
policies of market (de)regulation, may be insufficient, and that policies and
institutions that help consumers and investors to overcome some of their
behavioral and emotional shortcomings are urgently needed.

Motivation schemes

Chapters
2 and 3 study the psychological effects of poverty and low social status and
their influence on an individual’s attainment and performance. The main message
of these chapters is that disadvantaged individuals may exhibit suboptimal
economic performance due to the psychological component associated to their
position in the society, rather than for their own abilities or their material
constraints.

Chapters
4 and 5, focus on solutions to the problem that poverty and inequality may
persist means of psychological states. Here Victor H. Gonzalez focuses on how
to motivate the individual using incentive schemes that motivate the
individual. The idea is to design cost-efficient contracts whose novelty does
not rely on the monetary incentives that they deliver, but on their capacity to
use the individual’s psychological biases at the benefit of the employer. He envisions
these contracts as policy instruments used by governments and firms to improve
the motivation of disadvantaged individuals.

The
contract studied in Chapter 4 features the formation of reference points by
means of a self-chosen production threshold. This contract takes advantage of
the psychological loss that the individual feels from falling short of her
target. The contract studied in Chapter 5, exploits the regularity that
individuals overweight small probabilities. A random performance evaluation
featuring different frequency evaluations is implemented. These two incentives
schemes deliver higher economic outcomes, than standard pay-for-performance contracts.

Methodology

The
methodology used in this dissertation, combines applied economic theory,
laboratory experiments, and survey data. I use applied theory to predict the
behavior of individuals under the situation of disadvantage and under different
contracts. I use both psychological and standard economics assumptions about
the behavior of these individuals. The results under both sets of assumptions
are evaluated in a controlled laboratory environment. In Chapter 2 survey
evidence is used to motivate the problem, the stage of laboratory experiments,
and to gain external validation.

Victor H. Gonzalez Jimenez (Bogota, Colombia, 1987) received a
B.A. in Economics from Universidad de los Andes in 2010. He obtained the M.Sc.
Econometrics and Mathematical Economics with distinction from Tilburg
University in 2011, and the M.Sc. Economics (Research) with distinction from
Tilburg University in 2013. He has been a Ph.D. candidate at the dept. of economics
at Tilburg since 2013. In September 2017, he joined the University of Vienna as
an Assistant Professor.

Victor Hugo Gonzalez Jiminez: On the Psychological Motives of Economic
Performance. Promotor: Prof. dr. Charles Noussair (Tilburg University). The defence will take place on December 8, at
Tilburg University (Auditorium, 10 AM).